90% traders don't make it???

toe · Aug 2, 2005

I'm not sure whether its 90% of traders win or 90% lose or something else but I'd be willing to bet this, the fewer who win the more they win

easyrider · Aug 2, 2005

The law of inverse expectation: The longer a person has been trading the smaller his estimation of successful traders becomes.

Remiraz · Aug 2, 2005

NOW, THERE'S FRESH EVIDENCE that day trading successfully is not beyond individuals willing and able to commit the time, sweat, and brainpower to build superior skills. Those who dabble will likely lose -- very badly. Do Individual Day Traders Make Money? Evidence from Taiwan, is a working paper issued in May by Yi-Tsung Lee and Yu-Jane Liu of National Chengchi University in Taipei, and Brad Barber and Terrance Odean of the University of California (at Davis and Berkeley, respectively). Noted veterans of behavioral finance, the UC economists have long tracked the moves of individual investors. Lee and Liu, having done research for the Taiwan Stock Exchange (TSE), struck a gold mine of data -- the full exchange trading record from 1995 to 1999, including each trader's identity. The four academics got together, since no similar trove has been available in the U.S. and day trading is popular in Taiwan. As a pioneering study, the results are merely suggestive. But if you think, as Liu does, that Taiwan's day traders act much like those elsewhere, the findings are intriguing. "Day trading is really hard. Most people lose their shirts," Barber says. "But there's a small population that makes a ton of money."

The researchers began by counting some 925,000 individual investors on the exchange in a typical month. They then identified the heaviest traders, a group that was just 1% of the total but accounted for more than half of all individuals' day-trading volume. They bought and sold stocks at a profit most days, but after transaction costs lost money. As for dabblers, the less they traded the more often they lost.

In a second cut of the data, the researchers checked to see if past winners kept winning. They ranked all traders by their success over the prior six months and then split them into six groups. The top-performing group went on to see average daily gains of $251, even after costs. At annual rates, that comes to more than five times the annual per capita income in Taiwan. The second-best group also netted gains, but just $48 a day, while the third group lost money, the fourth did worse yet, and so on.

The odds -- 82% of traders lose -- are so grim that Barber encourages no one to day trade. Yet it seems not everyone who does is a fool. Left for future researchers is what strategies -- trading just a stock two, say -- are winners. Meantime, we can form our own notions about what works. Here's one you might see on Jeopardy! Category: Wall Street Animals. Answer: Neither bull nor bear, they're quick as cats and work like dogs to become wise as owls. Question: Who are successful day traders?
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Charlie Dow · Aug 2, 2005

Quote from PuffyGums:

Here's an example of why TA can describe what has happened but can't predict anything.

Suppose you are in a big trading range. TA can tell you either to play the bounce off the range extremes or trade the break out. But which one?

TA will tell you stuff like 'Wait for the price to break out of the range by so much then trade the breakout."

Well if I had a nickel for every breakout that got reversed (and sometimes the market would actually breakout after the breakout reversal, screwing eveyone over in the process)...

If TA really was like nuclear physics (something that is hard to understand, but ultimately works by regular laws) then we'd all quit our jobs and have little computers earning money by trading.

I've seen articles in Real Money in which the writer complained that black boxes were fading all the classic TA signals. Well he's just realizing now what always was the case. When you play poker with Phil Ivey, why expect him to always follow the percentages and what the book says?

Every time the market follows a range, any potential breakout gets violated. When the market finally breaks out, the range gets violated. TA simultaneously explains either of the two possibilities and predicts both outcomes. A theory that covers everything, is a theory of nothing. You can't use it to make decisions.
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1 - Predicting price movement is suicide. Someone said in either this thread or another quite eloquently, "You must listen to the Market and do as you are told". Or something similar.
2 - I am strictly a TA trader and have NEVER traded a breakout in my life. Breakouts are not only stupid but suicide.
3 - You have already proved that you do not fully understand the overall use of TA by concentrating on breakouts in TA. There is absolutely nothing technical about breakouts. Breakouts are the absolute bottom of TA usage and least useful. Calling Breakouts the bulk of TA is like calling the drive to the restaurant the most flavorful part of the meal.
4 - As I stated before, classic TA signals are inconsistent and impractical to trade. And if you get your trading "facts" from Real Money and not from Real Life practical experience, that could be part of the overall misconceptions you are having regarding TA.
5 - You stated quite well why Breakouts don't work in your last paragragh.

Charlie Dow · Aug 2, 2005

Quote from nzbryant:

Great first post Typhoon. Thanks
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I second that!

40yotrader · Aug 2, 2005

Quote from toe:

I'm not sure whether its 90% of traders win or 90% lose or something else but I'd be willing to bet this, the fewer who win the more they win
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I'd bet it's the 80/20 rule. Of the winners, 80% of the profits are made by 20% of the participants.

43yotrader

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90% traders don't make it???

toe

easyrider

Remiraz

Charlie Dow

Charlie Dow

40yotrader